The message of Murray Smith’s book is aptly portrayed by its title, Invisible Leviathan. The book sets out to explain why Marx’s law of value lurks invisibly behind the movement of markets in modern capitalism and yet ultimately explains the disruptive and regular recurrence of crises in production and investment that so damage the livelihoods (and lives) of the many globally.

This book is a profound defence (both theoretically and empirically) of Marx’s law of value and its corollary, Marx’s law of the tendency of the rate of profit to fall, against the criticisms of bourgeois, ‘mainstream’ economics, the sophistry of ‘academic’ Marxists, and the epigones of the classical school of David Ricardo and Adam Smith. As the author points out, even the great majority of ‘left’ commentators concur that the causes of the ‘Great Recession’ of 2007–09 and the ensuing global slump are not to be found in Marx’s theories, but rather in the excessive greed of corporate and financial elites, in Keynes’s theory of deficient effective demand, or in Minksy’s theory of financial fragility. When acknowledged at all, Marx’s value theory and his law of profitability are attacked, marginalised or dismissed as irrelevant.

None of this should be surprising given the main political implication of Marx’s laws: namely, that there can be no permanent policy solutions to economic crises that involve preserving the capitalist mode of production. I am reminded of the debate at the 2016 annual meeting of the American Economics Association between some Marxists (including myself) and leading Keynesian Brad DeLong, who seemed to characterise us as ‘waiting for Godot’ – that is to say, as passive utopians, waiting for collapse and revolution – while he stood for ‘doing something now’ about the deplorable state of capitalism. But as Smith explains so well, it is the ‘practical’ Keynesians who are the real utopians in imagining that actually existing, twenty-first-century capitalism – characterised by crises, war and ‘the avarice and irresponsibility of the rich’ – can still be given a more human and progressive face.

Against the many variants of ‘practical’ economics, Smith’s book sets out to:

uphold Marx’s original analysis of capitalism, not only as the most fruitfully scientific framework for understanding contemporary economic problems and trends, but also as the indispensable basis for sustaining a revolutionary socialist political project in our time. It does so by examining the crisis-inducing dynamics and deepening irrationality of the capitalist system through the lens of Marx’s ‘value theory’ – which, despite the many unfounded claims of its detractors, has never been effectively ‘refuted’ and which continues to generate insights into the pathologies of capitalism unmatched by any other critical theory.

Marxian value theory has been subject to ridicule, distortion and incessant rebuttal ever since it was first expounded by Marx 150 years ago. And the simple reason for this is that value theory is necessarily at the core of any truly effective indictment of capitalism – and essential to refuting its apologists. What truly motivates the ‘Marx critique’ of the bourgeois mainstream is graphically confirmed by the (in)famous argument of Paul Samuelson (the leading exponent of the ‘neoclassical synthesis’ in mainstream economics after World War II) according to which Marx’s value theory is ‘redundant’ as an explanation of the movement of prices in markets. The market, you see, reveals prices, and that is really all we need to know.

It is instructive to note that, shortly after Samuelson’s 1971 broadside against Marx, the (recently deceased) neoclassical economist William Baumol offered a trenchant response to Samuelson’s ‘crude propaganda’. In a paper from 1974, Baumol pointed out quite correctly that Samuelson had entirely misunderstood Marx’s purpose in his discussion of the so-called transformation of values into prices. Marx did not want to show that market prices were related directly to values measured in labour time. Quite the contrary:

The aim was to show that capitalism was a mode of production for profit and profits came from the exploitation of labour; but this fact was obscured by the market where things seemed to be exchanged on the basis of an equality of supply and demand. Profit first comes from the exploitation of labour and then is redistributed (transformed) among the branches of capital through competition and the market into prices of production.

The whole process reveals the ‘Invisible Leviathan’ at work.

Unfortunately, it is not just mainstream economics that has tried to rubbish Marx’s value theory. ‘Post-Keynesians’ like Joan Robinson and neo-Ricardian Marxists like Piero Sraffa and Ian Steedman have also done so. Like Samuelson, they resort to the argument that Marx’s value magnitude analysis is redundant, unnecessary and above all fallacious. As an alternative, Sraffa claimed that prices in capitalist markets can be derived directly from physical output.

Murray Smith demolishes these critiques and revisions, standing firmly on what he calls a ‘fundamentalist’ position that involves a return to both aspects of Marx’s fundamental theoretical programme: the analysis of the form and the magnitude of value, as well as a concern with the relationship of each to the social substance of value: abstract labour. I join him under this banner.

According to Smith:

Marx’s theory of value yields two postulates that are central to his critical analysis of capitalism: 1) living labour is the sole source of all new value (including surplus-value), and 2) value exists as a definite quantitative magnitude that establishes parametric limits on prices, profits, wages and all other expressions of the ‘money-form’. From this flows Marx’s fundamental law of capitalist accumulation: that the tendency of the social capital to increase its organic composition (that is, to replace ‘living labour’ with the ‘dead labour’ embodied in an increasingly sophisticated productive apparatus) must exert a downward pressure on the rate of profit, the decisive regulator of capitalist accumulation.

The book’s theory of capitalist crises rests firmly on Marx’s law of profitability. But, as Smith insists,

Marx’s law of value is merely a ‘necessary presupposition’ of this law of profitability, not a sufficient one. Yet, there is a sense in which the latter stands as a corollary to the former, even if not a theoretically ineluctable one. For capitalism is a mode of production in which the goal of ‘economic activity’ is only incidentally the production of particular things to satisfy particular human needs or wants, while its real, overriding goal is the reproduction of capitalist social relations through the production of value, that ‘social substance’ which is the flesh and blood of Adam Smith’s powerful yet also fallible ‘invisible hand’ – of our ‘Invisible Leviathan’.

And so:

[T]hese laws provide a compelling basis for the conclusion that capitalism is, at bottom, an ‘irrational’ and historically limited system, one that digs its own grave by seeking to assert its ‘independence’ from living labour even while remaining decisively dependent upon the exploitation of living wage-labour for the production of its very life-blood: the surplus-value that is the social substance of private profit.

Smith is by no means content with a purely theoretical defence of Marx’s analysis of capitalism’s Invisible Leviathan; he moves on to empirical verification of the ‘economic law of motion’ of capital as postulated by Marx. I share his view that this is essential. The contrary opinion of certain Marxists is that it is simply impossible to verify Marx’s laws, as the latter are about labour values and official bourgeois data can only detect movements in prices, not values. Moreover, according to this line of thought, statistical verification of Marx’s value-theoretic hypotheses is unnecessary, as the regular recurrence of crises under capitalism is a self-evident fact revealing its obsolescence.

But this is passing the buck. Any authentically scientific socialism demands rigorous scientific analysis and empirical evidence to verify or falsify its theoretical foundations; and Marx himself was the first Marxist to look at data in an effort to confirm his theories. In this connection, Smith writes:

Marxist analysis of the historical dynamics of the capitalist world economy ought not to dispense with serious attempts to measure such fundamental Marxian (value-theoretic) ratios as the average rate of profit, the rate of surplus-value, and the organic composition of capital. To be sure, such attempts can never offer much more than rough approximations. Even so, they are vitally important to charting and comprehending essential trends in the [capitalist mode of production] – trends that can usefully inform, if only in a very general sense, the political-programmatic perspectives and tasks of Marxist socialists in relation to the broader working-class movement.

Murray Smith’s own empirical analysis is original and somewhat controversial. He revives the approach of Shane Mage, whose pioneering empirical work of 1963 on the rate of profit treated the wages of ‘socially necessary unproductive labour’ (SNUL) as a systemic ‘overhead’ cost that should not be regarded as a ‘non-profit’ component of (or absolute ‘deduction’ from) the surplus-value created by productive labour, but rather as a special form of constant capital. In Smith’s view,

by conceptualising SNUL as a necessary systemic overhead cost, the constant-capital approach emphasises that capital’s room for manoeuvre with respect to [persistent problems of valorisation and profitability] is quite limited, giving Marx’s proposition that ‘the true barrier to capitalist production is capital itself’ a somewhat new twist.

And indeed, his analysis of the US capitalist economy (from 1950 to 2013) does reveal a long-term fall in the average rate of profit that is significantly correlated with a secular rise in the organic composition of capital, entirely in accordance with Marx’s view. This hugely important result has been replicated by many other Marxist studies in the last 20 years, several of which appear alongside Smith’s in The World in Crisis, a volume edited by Guglielmo Carchedi and myself. Many are also referenced in my own recent book The Long Depression.1 (It is noteworthy that Smith’s initial empirical study of Marx’s law of the tendency of the rate of profit to fall, employing data on the postwar Canadian economy, was first published in 1991, with an updated version appearing in 1996. The results of those studies, along with some others, are also to be found in the present volume.)

Theory and evidence should lead to practice – which means not ‘waiting for Godot’. At the end of the book, Smith refuses to evade the practical upshot of his theoretical and empirical investigations:

The essential programmatic conclusion emerging from Marx’s analysis is that capitalism is constitutionally incapable of a ‘progressive’, ‘crisis-free’ evolution that would render the socialist project ‘unnecessary’, and furthermore, that a socialist transformation cannot be brought about through a process of gradual, incremental reform. Capitalism must be destroyed root and branch before there can be any hope of social reconstruction on fundamentally different foundations – and such a reconstruction is vitally necessary to ensuring further human progress.

In this bicentennial year of his birth, I can’t help thinking Marx would be pleased. The enemies of his transformative, socialist vision will no doubt be disgruntled.

Last weekend’s Rethinking Economics conference on Pluralism in Economics was excellent. The organisers at Greenwich Rethinking Economics did a great job in getting together a range of top speakers on many aspects of modern economic ideas: money, inequality, imperialism and gender issues. They even managed to persuade top economist, Michael Kumhoff at the Bank of England to speak on pluralist developments in economics. And the turnout for the whole conference rivalled that of more well-known gatherings of radical economics.

I see this as three ‘schools’ of thought – something that some participants from the heterodox wing found strange. Why was Marxian economics not subsumed within the heterodox? For me, the answer was simple. There was one thing that unites the mainstream and the heterodox (in every form) and one thing in which Marxian economics stood out: namely the labour theory of value and surplus value. The neoclassical and all the heterodox from Keynes to Kalecki, Robinson, Minsky, Keen and the MMTers deny the validity and relevance of Marx’s key contribution to understanding the capitalist system: that is it is a system of production for profit; and profits emerge from the exploitation of labour power – where value and surplus value arises. Value does not come from marginal utility (individual satisfaction) or marginal productivity (return on factor input) but from exploitation, realised in the sale of commodities for a profit.

Capitalism is a monetary economy where production is for profit, not need. This glaringly obvious reality is denied by the mainstream (where there is no profit “at the margin”) and also by the heterodox who either accept marginalism or reckon profit comes from ‘monopoly’ or ‘power’ or from ‘financialisation’ – but not from the exploitation of labour power.

For me, Marx’s explanation is not only correct in reality, it is also necessary in order to clarify the very process of accumulation and endemic crisis within capitalism – all other schools of economics fall short on this. In the session on Marx, Carolina Alves also emphasised the other key aspect of Marx’s contribution to understanding society, namely the materialist conception of history. ‘Social being determines consciousness’ not vice versa, and technology (the forces of production) and social relations (the ownership of the means of production) determine class struggle and forms of social organisation and ideology. Contrary to Keynes’ idealist view that bad economics is held in the grip of some defunct economist’s idea, mainstream economics is reduced to an apologia for the status quo of capitalism because economists ultimately work for the material interests of capital, at expense of science. Thus Marx’s main aim was a ‘critique of political economy’ – to use the subtitle of Capital.

Criticism of Marx’s theory of value, at least as expressed from the audience at the Marx session, was that Marx is outdated: he was okay in explaining the industrial economies of the 19th century and even the exploited labour of the emerging economies now, but he had no relevance to modern service hi-tech worker economies of the advanced capitalist economies. My answer was: tell that to workers in Amazon. More generally, exploitation rates in advanced economies are rising, not falling. The other critique was that Marx could tell us little about what happened in the Soviet Union or China – that’s true to some extent, but then Capital is about capitalism and a critique of political economy, not post-capitalist economies.

That Marx’s value theory is ignored or rejected just as much by heterodox economics as by the mainstream was revealed in the session on the role of money and finance in modern economies. Jo Michel, a post-Keynesian economist from the University of West of England, gave an excellent and clear account of the role of money. But when he was asked whether any theory of money and credit required the backing of a value theory, he replied (after some hesitation) “probably not”.

Thus money and finance are to be separated from value and commodities and have an autonomous (or even determining) role in capitalism rather than the production of value and surplus value. This, of course, is exactly where modern monetary theory (MMT) also ends up – divorced from the anchor of value and profit and denying the social relations of capitalist production. The private ownership of the means of production and the exploitation of those who own noting but their labour power is ignored by heterodox, post-Keynesian-MMT analysis. As Jo Michell said, you cannot fix climate change or inequality through monetary action. I would add, you cannot avoid regular crises in capitalism with just monetary or financial measures.

In the same session, Frances Coppola, a heterodox economics blogger, argued that crises were really the product of too little money chasing too many goods (referring to Irving Fisher’s comment during the Great Depression of the 1930s). But she reckoned that monetary injections from central banks along the lines of quantitative easing after the Great Recession have failed to get capitalist economies going because banks won’t lend. There is ‘fear and uncertainty’, which stops banks lending, companies investing and people spending. This argument rings of the Keynesian idea of low ‘animal spirits’. Crises and the long depression are the result of changes in the ‘psychology’ of investors and consumers and has nothing to do with the profitability of capital. When asked that, if crises were due to fear and uncertainty, what could we do to get rid of these fears?, she responded that we just have to wait until ‘confidence’ comes back!

Coppola too rejected the need for a theory of value or profit. Instead Coppola reckoned money was controlled by ‘power structures’ (financial institutions?) and was not related to value. Indeed, in a previous event organised by Rethinking Economics some years ago, Coppola did a session on value theory where she outrightly rejected Marx’s theory of value in favour of the marginal utility theory of the mainstream. It seems to me that heterodox schools, in denying Marx’s value theory or the need for any theory of value, end up adopting neoclassical marginalism.

I also attended a session on dependency and imperialism where Ingrid Harvold from the University of York outlined all the variations of so-called dependency theory, namely that the peripheral ‘emerging’ economies are so dependent on the imperialist centre that they cannot develop and grow in any significant way. There are many variations on the causes of this dependency from falling terms of trade due the different productivities, monopoly control of finance and technology by the imperialist economies, and lower wages and super-exploitation of the ‘south’.

Tony Norfield, author of The City, a book that I have reviewed before, presented his definition of imperialism as monopoly power by top states backed by international institutions like the IMF, World Bank and the UN. This monopoly power gives the imperialists states better financial access and control of technology. Norfield demonstrated with his ‘imperialist power index’ that there are really just ten or so countries that can be considered as imperialist with the rest just also-rans. But he cautioned against the view that finance is all. Financial power flows from productive and technological power. Financial crises are a symptom of an underlying crisis in capitalism, when debt gets out of line with the production of value.

Yes, that was my key take-away from this excellent conference. Marxist political economy stands separate from the mainstream and from heterodox theories because it is grounded on a theory of value based on the exploitation of labour power. This is the key, both to social relations of production and the role of money, but also to the causes of crises and imperialist domination. Profit is the driving force of investment and production in a capitalist economy and so what happens to profits and the profitability of capital is the determining factor in crises. Thus crises cannot be permanently expunged from modern economies until the profit-driven capitalist economy is replaced. Trying to ‘fix’ finance through regulation; or slumps through fiscal or monetary stimulus, as the heterodox focus on, is doomed to failure.

The first three months of 2019 have shown a significant slowing in global economic activity. Global manufacturing output (as measured by JP Morgan economists) is actually falling.

So too is global trade for the first two months of this year.

And just today US retail sales for February also showed a slowdown.

We’ve had falling economic activity indicators in many major economies; and contracting industrial production in Europe and Japan. The business activity indicators in the US are the highest among the G7 top capitalist economies, but even there, they are beginning to fall back. Here is the latest Markit indicator for US manufacturing – still above 50 but dropping.

Corporate profits, which is the main driver of investment growth (usually with a one-year lag), are also slowing in some of the top economies. Indeed, China has just announced the biggest drop in industrial profits in ten years, down 14% in Jan-Feb over last year.

The forecasts for economic growth in the first quarter of this year which has just ended have all been lowered from previous estimates. In the US, after achieving near 3% a year in 2018, the average forecast is for just 2% annualised growth in Q1 2019 and even lower in Q2.

As I said in my last post, it appears that what I call the Long Depression in the major capitalist economies since the end of the Great Recession in 2009, is not over. I define this Long Depression as one where global growth in real GDP, trade, investment and wage incomes are well below the previous pre-crisis rate up to 2007. And the differential between where GDP and investment would be if trend growth had continued over the last ten years and where they actually are, remains, with little narrowing at all.

And yet this is after what John Mauldin, the investment blogger calls:“years of astonishing, amazing, unprecedented, and astronomically huge monetary stimulus by the Federal Reserve, Bank of Japan, European Central Bank, and others. In various and sundry ways, they opened the spigots and left them running full speed for almost a decade. And all it produced was the above-mentioned weak recovery.”

And it is not just the top economies in Europe and Asia that are slowing fast. Australia, the so-called ‘lucky’ country, has avoided a recession for over 27 years – only China has a better record. But with the slowdown in China and elsewhere, the Australian economy has entered what some call a ‘growth recession’, where real GDP growth no longer matches the expansion of the population, so GDP per person has been falling for the last two quarters of 2018. After a mega housing boom taking household debt to GDP to over 120%, one of the highest in the world, with household debt to disposable income near 190%, house prices have started to collapse, falling 14% from 18 months ago.

And then there are the so-called emerging markets. This is what I said last May:“Rising global interest rates and the growing trade war initiated by US President Trump are going to hit the so-called emerging capitalist economies like Turkey. The cost of borrowing in foreign currency will rise sharply and foreign investment is likely to reverse…..Turkey is now near the top of the pile for a debt crisis, along with Argentina (already there), Ukraine and South Africa.”

Increased costs of borrowing in dollars and the fall in global trade, along with the risk of an outright trade war between the US and China have led to foreign investors holding back from putting their money into weaker or troubled emerging economies like Turkey, Argentina, Venezuela, and even Indonesia. Their currencies have plunged, driving up costs of borrowing even further and leading a flight of capital by rich Turks or Argentines. William Jackson, the chief emerging markets economist at the consultancy Capital Economics, said: “The scale of the tightening of financial conditions is similar to that during the 2011-12 eurozone debt crisis.”

Ukraine has also been a recipient of IMF aid, imposed on the country amid the deep recession of 2016 and during the civil war that broke out between the centre under a right-wing government in Kiev and the Russian-speaking east, backed by Putin’s Russia. Although the economy has made a mild recovery in 2017 and 2018, following the global pick-up in commodity prices, the level of corruption is unprecedented.

As a result, Ukraine electors have turned away from the main contenders, like President Poroshenko and the favourite of the West, Yulia Tymoshenko, and opted for a TV comedian who professes that he is clean and anti-corrupt. “Under Poroshenko, our standard of living lowered even more. I became a pensioner under his administration. I have a 30-year work experience as a kindergarten teacher and I receive 1,600 hryvnia [$58], they recently raised it by 100 hryvnia [$3.6],” said one Ukrainian voter tearfully. “I am very unsatisfied with the current government. They are all ‘thieves in law’.”

And then there is the tragedy of Venezuela. There is no space to go again into the terrible situation there, with daily power blackouts, hyperinflation (by the IMF’s calculations, Venezuela’s annual rate of inflation for 2019 will be 10m %) and shortages amid an attempt at a coup by right-wing interests backed by the US and its underlings in other Latin American countries. They have seized financial control of the state oil company (although not on the ground). The Maduro regime hangs on with the limited support of Russian and Chinese aid. Venezuela’s GDP meltdown since 2013 rivals the fall of the Soviet Union.

The advanced capitalist economies are slowing down fast and many so-called emerging economies are going into recession. Even in the US, fear about a possible recession has led investors to hold government bonds, driving down the yield (effective interest rate) below the level found for short-term borrowing by banks. The so-called inverted yield curve has been a fairly reliable indicator of a recession coming – because it reflects the unwillingness to invest for production even when interest rates for borrowing are very low.

How will any global recession emerge? The most likely pivot point is corporate debt. Since the end of the Great Recession, global non-financial debt has continued to rise. Household debt has fallen because people have defaulted on their mortgages or they are unable to get one. Government debt rocketed as governments bailed out the banks and borrowed to cover deficits caused by falling tax revenues and rising welfare benefits. But government debt has now more or less stabilised (as share of GDP). However, corporate debt goes on rising.

So far the interest cost of servicing this rising debt has been manageable – at least for most companies, although it is estimated by the Bank for International Settlements (BIS) that around 20% of companies are ‘zombies’ ie are not earning enough profit to cover their debt costs. If interest rates were to shoot up (they cannot go any lower!), and/or profit were to dive, then whole swathes of companies could be in trouble and start defaulting on their bonds or loans from the banks.

Maybe, the current downturn is just a mild one – as the fall in GDP growth in 2015-16 was. But it seems this time that it is wider in scope and may well be much deeper.

This week, the US Federal Reserve Bank decided to stop raising its policy interest rate for the rest of 2019. The Fed started hiking rates from near zero back in late 2016 on the grounds that the Long Depression (in economic growth, investment and employment in the US and in other major economies) was over. As economies reached full employment and used up excess capacity in industry, wages rises and price inflation would accelerate, so it would be necessary to curb any ‘overheating’ with higher interest rates to slow borrowing and spending. This policy of ‘normalisation’, as it is called, seemed to be justified after the Trump tax cuts were introduced in late 2017. Those measures led to a sharp rise in after-tax profits for US corporations and an apparent pick-up in US real GDP growth, reaching a 3% yoy rate at the end of 2018. All looked well.

However, as I argued back in spring 2018, the global economy had actually peaked. And now nearly one year later, forecasts for a continued ‘recovery’ have been reversed. A year ago, the Fed had raised its real GDP growth forecast for the whole of 2018 to 2.7% and 2.4% for 2019. Now at its March 2019 meeting, it has lowered its forecast for 2019 to 2.1% and just 1.9% for 2020, slowing again to just 1.8% in 2021 – well below the boasted 3%-plus that Trump claims his tax measures would achieve permanently.

So now the Fed is stopping its rate hiking and also ending its monetary tightening policy of running down its huge holdings of government bonds that it had built up as part of the ‘quantitative easing’ programme, launched in the Great Recession to save the banks and provide cheap money for investment.

What is happening? Well, it always was a risk that hiking interest rates when economic growth and investment were weak would cause a stock market collapse and a new economic slump. Now with US economic growth in the current quarter to the end of March likely to be no more than at a 1.5% annual rate and the Eurozone, the UK and Japan slipping back towards outright recession, the Fed has taken fright and put its normalisation policy into cold storage. So the Long Depression is not over after all.

The most startling difference, however, between the Long Depression and the Great Depression of the 1930s is that, in the last decade in the major economies, the official unemployment rate has dropped back to near record lows (in the US, UK, Japan).

And yet inflation has not spiralled upwards at all. The trade-off between low unemployment and high inflation (as shown by the so-called Phillips curve), is a hallmark prediction of Keynesian aggregate demand theory. But it has not materialised. The Phillips curve (ratio of the unemployment rate to the inflation rate) is nearly flat in most capitalist economies – there is little trade-off.

This is confounding mainstream economic thought and the policies of central banks, as I outlined in my previous post. “I don’t feel we have convincingly achieved our 2% mandate in a symmetrical way,” said Fed chair Jay Powell. “It’s one of the major challenges of our time, to have downward pressure on inflation”.

What seems to have happened is that, in the wake of the Great Recession, in an environment of low profitability on capital in most major economies, companies have opted to take on more labour rather than invest. The new labour entrants are being employed in low-wage occupations, and/or on temporary and part-time contracts.

For example, there are 17% of American workers only employed part-time, one-third more than in the 1960s. The US official unemployment rate may be down but that is partly because many Americans of working age have disappeared from the labour market: to study, work informally or just live at home with the family.

And there has been a rise in self-employment – in the so-called ‘gig economy’. So, while skilled workers (in short supply) have begun to experience wage rises, the bulk of the non-management workforce in the US, the UK, Japan and Europe instead have seen significant periods of falling real earnings. While the average real GDP growth rate per person in the US has been about 1.5% since 2009, average hourly real earnings for most US workers have risen only 0.8% a year.

Thus there has been no ‘wage-push’ inflation and average real incomes have stagnated. The capitalist sector has not increased investment in new machinery, plant or technology to a level that would lead to replacing labour or boosting the productivity of the existing workforce. Whereas in the Great Depression of the 1930s, unemployment remained high up to the start of WW2 while productivity rose sharply; the opposite is the case in this Long Depression.

The latest estimate of global capital investment made by JP Morgan economists suggests that investment orders are falling and imports of capital goods have moved into negative territory.

In contrast, the US stock market heads back to new highs. We are now in an economic world where there appears to be a sort of ‘full employment’, but stagnant real wages (for most), low interest rates and inflation and above all low productive investment. Meanwhile corporate debt is rising fast globally as major companies issue bonds at low rates of interest in order to buy back their own shares and thus boost the company’s stock price and continue the party.

The Long Depression has become a fantasy world of rising financial asset prices, low investment and productivity growth, where nearly everybody can get a job (working part-time, temporary or self-employed), but not a living.

Last week, the prestigious Brooking Institution held a conference on the efficacy of monetary policy in stimulating and sustaining economic growth. At the conference, Larry Summers, former US Treasury secretary and professor at Harvard University and Lukasz Rachel of the Bank of England, presented a paper that aimed to revive, yet again, the idea that the major capitalist economies are locked into ‘secular stagnation’: “Our findings support the idea that, absent offsetting policies, mature industrial economies are prone to secular stagnation.”

Central bank monetary stimulation has failed, except to promote ‘credit bubbles’ and speculation in financial assets and property. For example, here are the conclusions of a recent study on the impact of the monetary injections of the ECB in Europe: “the efforts of the ECB to hit its inflation target would be more credible if there was convincing empirical evidence that its balance sheet policies are effective at stimulating output and inflation. Our recent research shows that this macroeconomic evidence is still lacking.”

And there is every prospect of another economic slump approaching in which central banks will be powerless to do anything as interest rates are already near zero and the balance sheets of central banks are already at record highs. “Our findings support the idea that, absent offsetting policies, mature industrial economies are prone to secular stagnation. This raises profound questions about stabilization policy going forward.” (Summers and Rachel)

In the FT, Keynesian columnist Martin Wolf echoed the views of Summers and Rachel. Interest rates are near all-time lows and if you follow the Fisher-Wicksell theory of a ‘natural’ rate of interest that enables full employment, then it now seems that the natural ‘private sector’ interest rate needed to achieve jobs for all who want them has be in negative territory.

Of course, this so-called natural rate is a dubious concept at best. But even you accept the theory, as it seems many Keynesians want to do [“That is the root of our problem: the natural nominal rate of interest … today is less than zero, and so the Federal Reserve cannot push the market nominal rate of interest down low enough.” Brad DeLong], it just exposes the problem. Monetary policy has not and will not work in restoring the capitalist economy to a pace of growth that delivers investment and thus sustains jobs at rising real wages.

Indeed, as I have pointed out before, Keynes also realised after the Great Depression continued deep into the 1930s, that his advocacy of low interest rates and even ‘unconventional’ monetary policy (buying government bonds and printing money) was not working: ““I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest… since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principles I have described above, will be too great to be offset by any practicable changes in the rate of interest”. In other words, there is no natural rate of interest low enough to persuade capitalists to borrow and invest if they think the return on that investment would be too low. You can take a horse to water, but you cannot make it drink.

This week the Bank of Japan monetary committee met and threw up its hands in despair. After years of central bank ‘unconventional’ monetary easing (buying government bonds to the tune of 100% of GDP!) by printing money, the huge injection of credit into the banks has had no effect in lifting the economy. As Darren Aw, Asia economist with Capital Economics, remarked: “There is a good chance that Japan’s economy will contract again in Q1 2019, for a third time in five quarters”… Given this, the key question for the Bank of Japan is no longer when it might retreat from its ultra-loose policy stance but whether it can do any more to support the economy.” Thus the first of the PM Abe’s three arrows of economic policy (monetary easing, fiscal stimulus and neoliberal de-regulation) has failed.

Now it’s true that per capita GDP growth in Japan since the end of the Great Recession ten years ago is actually faster than in most other major capitalist economies. But that is simply because Japan has a sharply falling population. Real and nominal (before inflation) GDP has been virtually static. National output has remained more or less the same but there are less people that generate and consume it. Japan has the lowest working population as ratio to total population in the top 12 economies of the world.

And yet monetary easing is still pushed by Keynesians, especially the more radical ones from the post-Keynesian school, including those following Modern Monetary Theory (MMT). If the state and/or central bank prints money, it can use that money to stimulate the capitalist economy to get it going. Money is not so much the root of all evil but the genesis of all that is good, it seems. This sentiment reminds me of the earliest exponent of the magic of money – or the ‘money fetish’, namely John Law, who around 300 years ago had a unique opportunity to apply money printing to put an economy on its feet.

Ann Pettifor, the left Keynesian exponent of magic money, has called John Law a “much maligned genius whose 1705 account of the nature of money cannot be bettered”. This proto-Keynesian was the son of a wealthy Scottish goldsmith and banker. Law was born in Edinburgh, proceeding to squander his father’s substantial inheritance on gambling and fast living. Convicted of killing a love rival in a duel in London in 1694, Law bribed his way out of prison and escaped to the Continent. There Law concentrated on developing and publishing his monetary theory cum scheme, which he presented to the Scottish Parliament in 1705, publishing the memorandum the same year in a tract, Money and Trade Considered, with a Proposal for Supplying the Nation with Money (1705).

Law argued for a central bank to issue paper money backed by ‘the land of the nation’. Echoing the MMT (or is it the other way round?), Law proposed to “supply the nation” with a sufficiency of money. This would vivify trade and increase employment and production. Like MMT, Law stressed money is a mere government creation which had no intrinsic value. Its only function is to be a medium of exchange and not any store of value for the future.

Law was sure that any increased money supply and bank credit would not raise prices and expanding bank credit and bank money would push down the rate of interest (MMT again). To Law, as to Keynes after him, the main enemy of his scheme was the menace of “hoarding,” a practice that would defeat the purpose of greater spending. So, like the late 19th-century German money fetisher Silvio Gesell, Law proposed a statute that would prohibit the hoarding of money.

Amazingly Law found a supporter for his theories in the regent of France. The regent, the Duke of Orléans, set up Law as head of the Banque Générale in 1716, a central bank with a grant of the monopoly of the issue of bank notes in France. He was made the head of the new Mississippi Company, as well as director-general of French finances. The Mississippi Company issued bonds that were allegedly “backed” by the vast, undeveloped land that the French government owned in the Louisiana territory in North America.

This scheme eventually led, not to a booming economy, but instead to a speculative financial bubble where bonds, bank credit, prices, and monetary values skyrocketed from 1717 to 1720. Finally, in 1720, the bubble collapsed and Law ended up as a pauper heavily in debt, forced once again to flee the country. Law was not so much a ‘much maligned genius’ but more “a pleasant character mixture of swindler and prophet” Karl Marx (1894: p.441). What the Law debacle showed was that the state just issuing money cannot replace the ‘real economy’ of production and trade. Money alone does not create investment or production.

Of course, modern Keynesians (unless they are of the MMT variety) do not promote unending printing of money for governments and the private sector to spend. That’s because they have been forced to recognise; as John Law found in 1719-20; and as Keynes found in 1933; and as Abe in Japan has found now; and the secular stagnationists also accept, printing money does not work if capitalists and bankers hoard that money or switch it into speculative investments in financial assets.

So what’s the answer? Well, as Martin Wolf puts it: “The credibility of the “secular stagnation” thesis and our unhappy experience with the impact of monetary policy prove that we have come to rely far too heavily on central banks. But they cannot manage secular stagnation successfully. If anything, they make the problem worse, in the long run. We need other instruments. Fiscal policy is the place to start.” Yes, it’s back to fiscal stimulus. But will that work either?

Last year President Trump launched a fiscal stimulus of sorts by cutting taxes for the rich and the big corporations. It boosted after-tax profits in 2017 sharply and real GDP growth ticked up a little towards 3% a year. But that boost has been all too fleeting. US real GDP growth is heading back down to below a 1% rate in this quarter and business investment is also turning down.

This should be the policy dream of MMT and other post-Keynesians. But it has not worked in Japan. Japan has ‘full employment’, but at low wages and with temporary and part-time contracts for many (particularly women). Real household consumption has risen at only 0.4% a year since 2007, less than half the rate before. So fiscal stimulus has not worked in Japan which remains in ‘secular stagnation’.

And it did not work in the Great Depression of the 1930s. After dropping monetary easing as the policy answer to the depression, in the Los Angeles Times on 31 December 1933, Keynes wrote: ‘Thus, as the prime mover in the first stage of the technique of recovery, I lay overwhelming emphasis on the increase of national purchasing power resulting from governmental expenditure which is financed by loans and is not merely a transfer through taxation from existing incomes. Nothing else counts in comparison with this.’ Deficit-financing was the answer.

Wolf recognises that fiscal policy may also not work. “It is of course essential to ask how best to use those deficits productively. If the private sector does not wish to invest, the government shoulddecide to do so.” So if the ‘private sector’ (ie the capitalist sector) won’t increase investment rates to boost growth despite negative interest rates and despite huge government money injections funded by money printing, the government will have to step in do the job itself, apparently.

I don’t really like the term ‘neoliberal’ because it is used lazily as an alternative to pro-capitalist policies or even to the word ‘capitalism’ itself. In doing so, it causes confusion in explanations about trends and failures in capitalist development. What flows is the argument that if ‘neoliberalism’ is ended, then we can return to ‘managed capitalism’ or social democracy’, neither of which, in my view, should be used to suggest something different from the capitalist mode of production itself.

And if leftists continue to use ‘neoliberalism’ as a term to replace capitalism (or as some nasty ‘free market version), they open the door to the sort of nonsense that economic journalist Noah Smith concocted last week, as expressed in his Bloomberg piece: “Neoliberalism should not be a dirty word on the left”.

In his piece, Smith argues that by attacking neoliberalism,“Too many people forget the contribution markets have made to human well-being.” He justifies the success of neoliberalism (as defined by him as capitalist market forces and policies that support such) with three main stylised facts.

The first is that “Market liberalization in countries such as India and China seems to have precipitated a shift to faster growth, while trade and investment links with rich countries have helped these and other developing countries tremendously.” So China’s growth miracle is a product of neoliberal policies of ‘market liberalisation’, presumably introduced by Deng in the late 1970s and supplemented by foreign investment and China joining the World Trade Organisation (WTO).

This story has been perpetuated by many mainstream economists. But it does not hold water. Yes, China opened up sectors of the economy to foreign investment and the market, particularly in agriculture. But the bulk of investment and foreign trade was still controlled by the state and state corporations; and capital controls were in force. The state was everywhere in the operation of the economy. So was China’s success really a product of neoliberalism? See my post on this misconception here.

The second argument is that neoliberal policies have “helped pull a billion people out of desperate poverty, and billions more are on the way to becoming middle class.” This is yet another myth offered by the apologists for global capitalism by the likes of Microsoft billionaire, Bill Gates, among others. Smith follows in those footsteps to justify ‘neoliberalism’.

Anthropologist Jason Hickel has provided an excellent refutation of this claim that global poverty is being solved and falling fast, thanks to capitalism. Much depends on how to define poverty. Hickel: “If we use $7.40 per day, we see a decline in the proportion of people living in poverty, but it’s not nearly as dramatic as your rosy narrative would have it. In 1981 a staggering 71% lived in poverty. Today it hovers at 58% (for 2013, the most recent data). Suddenly your grand story of progress seems tepid, mediocre, and – in a world that’s as fabulously rich as ours – completely obscene…. “And if we look at absolute numbers, the trend changes completely. The poverty rate has worsened dramatically since 1981, from 3.2 billion to 4.2 billion, according to World Bank data. Six times higher than you would have people believe. That’s not progress in my book – that’s a disgrace.”

In his pursuit of praise for neoliberalism (in reality capitalism) Smith has elsewhere tried to trash Hickel’s arguments that global poverty has not really declined. But, as usual, Smith and others who take his line, ignore the key fact that the fall in global poverty levels, whatever the threshold points chosen, is mostly down to the massive reduction in poverty levels in China – a country that can hardly be considered having an economy that operates on neoliberal free market forces (although Smith seems to claim it does!).

Smith supplements his argument for neoliberalism by arguing that in the last 30 years “progress in the developing world has been impressive — something for which neoliberalism probably deserves a lot of credit — but it is far from complete; most of South Asia is still very poor, and much of Africa is just beginning to industrialize.” Indeed, far from complete. The inhabitants of Nigeria, Africa’s most populated country or those of the Congo can tell Smith that progress in their countries has not been “impressive” at all. And not just there. According to Ha-Joon Chang, a Cambridge economist, during the 1960s-and-70s per capita income in Sub-Saharan Africa was around 1.6% per annum; however, after they were imposed with a neoliberal economic model by the West, during the 1980s and 90s, per capita income fell to only 0.7% per year.

What industrialisation that has taken place in recent decades (beyond just basic resource and agro commodity production) in Africa is mainly due to the investment being offered and applied by China – the opposite of Smith’s model of neoliberalism, in my view.

Smith also argued that “neoliberal policies might have led to faster productivity growth in the 1990s and early 2000s” in the advanced capitalist economies. You see “The spurt of growth is commonly attributed to the information-technology boom, but that boom might not have been possible if the US had more strictly regulated emerging industries in order to protect favored incumbents.” This is just speculation without evidence. Whatever “spurt” in productivity took place in the hi-tech boom of the 1990s, it was still way less than in the pre-neoliberal period of the 1950s and 1960s (see graph).

Moreover, it has been the state that has sparked much of that ‘innovation’ back in the 1960s and after, Mariana Mazzacuto, in her book, The Entrepreneurial State, explains that” the real story behind Silicon Valley is not the story of the state getting out of the way so that risk-taking venture capitalists – and garage tinkerers – could do their thing. From the internet to nanotech, most of the fundamental advances – in both basic research but also downstream commercialisation – were funded by government, with businesses moving into the game only once the returns were in clear sight. All the radical technologies behind the iPhone were government-funded: the internet, GPS, touchscreen display, and even the voice-activated Siri personal assistant.”

Contrary to Smith’s neoliberal view, state-owned industry and economic growth often go together – “the seldom-discussed European success story is Austria, which achieved the second highest level of economic growth (after Japan) between 1945 and 1987 with the highest state-owned share of the economy in the OECD.” (Hu Chang).

Smith claims neoliberal reforms in the labour market helped to achieve lower unemployment rates in places like Germany. “Germany suffered high unemployment in the 1980s and 1990s, thanks to its rigid labour market regulations; eventually, it eased those restrictions, which substantially lowered the unemployment rate.” Here he refers to the infamous Haartz labour reforms that introduced a tiered employment system, putting millions into low wage programmes that boosted German industry’s profitability while keeping real wage incomes stagnant.

About one quarter of the German workforce now receive a “low income” wage, using a common definition of one that is less than two-thirds of the median, which is a higher proportion than all 17 European countries, except Lithuania. A recent Institute for Employment Research (IAB) study found wage inequality in Germany has increased since the 1990s, particularly at the bottom end of the income spectrum. The number of temporary workers in Germany has almost trebled over the past 10 years to about 822,000, according to the Federal Employment Agency. In my view, this is not the best example of the ‘success’ of neoliberal policies, at least not for labour.

It is ironic that Smith pushes the policies of the ‘free market’ at a time when all the trends in the current neoliberal world show slowing growth in real GDP, productivity and investment, along with stagnant real wages and rising inequality.

And yet, Smith presses on with the argument for neoliberal policies to “restrain social democrats’ more ambitious impulses” and “to protect the US economy’s entrepreneurial private sector, and to make sure that technological progress and international trade don’t get forgotten.” In other words, he reckons that we need to balance, against the urgent need for decent public services, proper labour rights and conditions, control of the corrupt and unproductive finance sector and the avoidance of disastrous economic slumps, the fundamental (neoliberal) aim to raise the profitability of the capitalist sector. Because we must not ‘forget’ the “contribution of markets to human well-being.”

There is one outstanding statistical feature of 21st century capitalism. Capitalism is increasingly failing to develop what Marx called the “productive forces” (namely the technology and labour necessary to expand the output of things and services that human society needs or wants). As measured by gross national product in all the economies of the world (or per person), world capitalism is finding it more and more difficult to expand.

When Marx and Engels wrote the Communist Manifesto 170 years ago, they proclaimed the productive power unleashed by the capitalist exploitation of labour power, based on using more and more means of production (machines, technology etc) to replace human labour, while extending its tentacles to all parts of the globe. Indeed, the rapacious drive for profit has led to an uncontrolled destruction of nature and of the earth’s resources that has polluted the planet. And now, fossil fuel production has caused an increasingly irreversible global warming that is changing the earth’s climate, bringing with it extreme weather and disasters.

Last year global GDP among the world’s 195 nations hit a record $85trn. Remarkably, three-quarters of this was accounted for by just 14 economies – the lucky few with an individual GDP in excess of $1trn.

The global population also hit a record last year of 7.6bn. That’s a doubling in less than half a century. The working age population (WAP) has reached 5bn, but this is mainly outside the top 12 economies (ie G14 minus India and Brazil).

In the major capitalist economies, output is now expanding much more slowly than ever before. As Alan Freeman has shown in a recent paper, “economic growth of the industrialised North has fallen continuously, with only brief and limited interruptions, since at least the early 1960s. The trend is extremely strong and includes all major Northern economies without exception.” The_sixty-year_downward_trend_of_economi (1)

As Freeman concludes, “we face, not merely a decline in the GDP growth rate of one country (for example, the United States, whose decline has been studied more exhaustively) but of an entire group – the advanced or industrialised countries – whose growth rates follow the same trend andindeed, have converged. The trend observed is thus highly likely to be systemic – accounted for by the structure of the world economy as a whole – than being a result of the problems or vagaries of one particular country.”

Economic growth depends on two factors: 1) the size of employed workforce and 2) the productivity of that workforce. On the first factor, there is a demographic demise. The advanced capitalist economies are running out of more human labour power. As for the second factor, the productivity growth of the employed workforce is slowing.

For the first time since the emergence of capitalism as the dominant mode of production globally, the largest economies – the G12 — saw their collective working age populations (WAP) decline. And this decline will accelerate, according UN Population Division forecasts.

Of the 14 economies with $1trn or more GDP, there are only two – India and Brazil – where the working age population will grow over the next generation. The other 12 will experience a decline in their workforce. It’s possible that increased immigration from more populous regions could enable the US, the UK, Canada and Australia to expand their workforce for a while – although the governments in all these countries want to cut back immigration. In Japan, Germany and Italy even immigration will not stop the fall. In South Korea, Germany and Italy, excluding immigration, the workforce will fall by 1% a year over the next ten years. So, other things being equal, that is 1% a year of potential GDP growth.

As a result, these leading capitalist economies will have ageing workforces and an increasingly dependent non-working population. Currently, among the biggest economies, people of working age (15-64 year olds) typically account for 65% of the total population.

Japan’s rapidly ageing population, however, shows the way forward. By 2030, the ratio of WAP/total population will decline everywhere. For those countries unable to “import” skilled working-age people, it will decline precipitously.

Then there is the productivity of that declining workforce. If productivity growth could be accelerated, then this could compensate for the contraction in the workforce and so sustain real GDP growth. But global productivity growth is slowing.

Over the last 40 years and especially in the last 15, there’s been a broad-based slowdown in output per hour worked across the major economies. For the G11 (excludes China), it’s currently running at a trend rate of just 0.7% p.a.

Russia’s productivity level is falling, while that of Italy and the UK is hardly moving.

If we add together the potential growth in the workforce and the growth in productivity of that workforce, we can get a forecast of potential real GDP growth over the next ten years. And remember, this assumes no new slumps in investment, employment and production from a crisis in capitalist production.

Without net immigration, real GDP across the G11 bloc will expand by less than 1% a year, with Australia doing best at 0.9% a year, while Russia and Italy could suffer an annual shrinkage of a similar proportion. With immigration, Australia’s potential annual growth could reach the heady heights of 1.7% a year, but everybody else would have a sub-1% growth rate. Even allowing for some skilled immigration from outside, it’s unlikely that real GDP growth for the G11 bloc as a whole would exceed 0.5% p.a!

In the case of the US, all three factors were at their strongest in the ‘hi-tech’ decade of the 1990s, but in the 2000s, the contribution of capital investment and labour employed dropped and since the Great Recession and in the subsequent Long Depression, all three factors have declined.

Part of the decline in US capital and labour investment can be laid at the door of increased globalisation as American companies went overseas for their factories and activities. But investment to GDP has declined in all the major economies and since 2007 (with the exception of China).

In 1980, both advanced capitalist economies and ‘emerging’capitalist ones (ex-China) had investment rates around 25% of GDP. Now the rate averages around 22%, or a more than 10% decline. The rate fell below 20% for advanced economies during the Great Recession.

Indeed, productivity growth is also slowing in the so-called emerging economies like China, Brazil and India.

Why is investment in new technology so sluggish and thus failing to restore productivity growth? The main reason for low investment in capitalist economies is that capitalists do not think it is profitable to invest in new technology to replace labour. Indeed, in the post Great Recession period, in many major economies like the US, the UK, Japan and in Europe, companies have preferred to keep their labour force and employ new workers on more ‘precarious’ contracts with fewer non-wage benefits and part-term or temporary contracts. That is revealed in very low official unemployment rates alongside low investment rates. Thus productivity growth is poor and overall real GDP growth is below-par.

The way to restore productivity growth and so get economies growing at a rate that can meet the demands of people for decent homes, education, health, and renewable energy is boost investment in new technology and the labour skills to go with it and distribute the gains to all. But here lies the contradiction in capitalist production. Production for profit not need. And increased investment in technology that replaces value-creating labour leads to a tendency for profitability to fall. So the need to expand and develop the productive forces comes into conflict capitalist accumulation. And resolving that contradiction through slumps that raise profitability or by increased exploitation of the global workforce is getting much more difficult.

world rate of profit – average of 14 major economies (profits as % of fixed assets)

The global workforce available to exploit is not growing so fast and while there are still reserves of labour in Africa (eg Nigeria etc) and Asia, in the developed capitalist economies, the workforces are set to shrink; while productivity growth through more investment in technology cannot compensate if profitability continues to press downwards over time.

“The accounting identities equating aggregate expenditures to production and of both to incomes at market prices are inescapable, no matter which variety of Keynesian or classical economics you espouse. I tell students that respect for identities is the first piece of wisdom that distinguishes economists from others who expiate on economics. The second? … Identities say nothing about causation.” James Tobin, leftist Keynesian 1997

“Money is ultimately a creation of government—but that doesn’t mean only government deficits determine the level of demand at any one time. The actions and beliefs of the private sector matter as well. And that in turn means you can have budget surpluses and excess demand at the same time, just as you can have budget deficits and deficient demand.” Jonathan Portes (orthodox Keynesian).

The increasingly abstruse debate among economists (mainstream, heterodox and leftist) continues on the validity of Modern Monetary Theory (MMT) and its relevance for economic policy. The debate among leftists went up another gear with the publication of leftist Doug Henwood’s fierce critique of MMT in Jacobin here. Leading MMTer Randall Wray angrily responded to Henwood’s attempted demolition here. And then from the heart of MMT land, Pavlina Tcherneva, program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute replied to Henwood in Jacobin.

In the mainstream, Paul Krugman had a go, with a response from Stephanie Kelton. Kelton is a professor of public policy and economics at Stony Brook University, Long Island New York. She was the Democrats’ chief economist on the staff of the U.S. Senate Budget Committee and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders.

Although this debate is getting very arcane and even nasty, it is not irrelevant because many leftists in the labour movement have been attracted by MMT as theoretical support for opposing ‘austerity’ and for justifying significant government spending to obtain full employment and incomes. In particular, the radical wing of the Democrat party in the US has used MMT to support their call for a Green New Deal – arguing that more government spending on the environment, climate change and health can easily be financed by the issuance of dollars, rather than by more taxes or more government bonds that would raise public debt.

I won’t pitch into the MMT debate as above as I have already spent some ink in three posts trying to critique the theory and policy of MMT from a Marxist viewpoint, with the aim of working out whether MMT offers a way forward to meeting ‘the needs of the many’ (labour) over the few (capital). And for me, that is the ultimate purpose of such a debate.

All I would add on the current debate among Keynesian, Post-Keynesians and MMTers is that MMTers argue with orthodox Keynesians over whether government spending can create the money to finance it; or taxation and borrowing is needed to create the money to fund government spending. But as post-Keynesian Thomas Palley puts it:“government spending and taxation occur simultaneously so creation of money via money financed deficits and destruction of money via taxation also occur simultaneously. It is a pointless exercise to try and determine which comes first.” Marxist analysis would agree.

Instead, in this post I want to look at MMT’s macro model. In the twitter debate that is viral (at least among economists and activists!), critics of MMT have sometimes argued that MMT is just a series of vague assertions without any rigorous model. This riled Kelton. She immediately posted a paper written in 2011 by Scott Fullwiler of Warburg College, another MMT leader (who also recently commented on one of my blog posts). In this paper, Scott outlined the MMT macro model in some detail.

Basically, he starts off with a Keynes/Kalecki post-Keynesian macro model of aggregate demand. This model is simply an identity. There are two ways of looking at an economy, by total income or by total spending and they must equal each other.

(NI) Profits + Wages = (NE) Investment + Consumption. Now there are two sorts of income and two sorts of spending.

If we assume that all Wages are spent then and all Profits are saved, we can delete Wages and Consumption from the identity. So

Profits = Investment

In the MMT version from Scott, he puts the same macro identity differently, with Investment on the left side of the equality. Thus.

Investment = Profits

Why? Because, as we shall see, all post-Keynesian theory argues that it is Investment that leads Profits, not vice versa.

But Scott re-expands the parts on the right-hand side to look at flows, so that wages that are saved are added back with profits to get Private Saving (so assuming some household saving); and he also adds in Government saving (taxation less spending) and Foreign Saving (net imports or current account deficit).

Thus Profits as a separate category disappears into Private Savings and we get:

But then Scott also dispenses with the separate category Investment and converts it into Private Saving less Investment or the Private Sector Surplus. So now we have Private Sector Savings (Wages saved plus Profits less Investment). So Scott continues:

Private Sector Surplus = Government Deficit + Current Account Balance

Or

Private Sector Surplus – Current Account Balance = Government Deficit

This is the key MMT identity. It argues that if the Government deficit rises, then assuming the Current Account balance does not change, the Private Sector Surplus (Wages saved +Profits less Investment) rises. The MMT conclusion (assertion) is that increasing the Government deficit will increase the Private Sector Surplus . And if we exclude Wages saved (the MMT identity does not) and the Current Account balance, then we have:

Net Profits (ie Profits after Investment) = Government deficit

And we can conclude that Government deficits determine Net Profits ie Profits less Investment.

In the paper Scott then presents a time series graph comparing US Private Net Saving (remember this includes Household net saving) with Government deficits and concludes that “It shows how closely the private sector surplus and the government sector deficit have moved historically, which isn’t surprising given they are nearly the opposing sides of an accounting identity.”

But then Scott says: “What we notice (from these graphs) is that the current rise in the government’s deficit is creating net saving for the private sector.” But is that how to view the causal direction of these macro identities? The post-Keynesians reckon that the causal connection is that Investment creates Profits or in the MMT version Government deficits create net profits (private saving). But in my view, the causal direction of this identity is in reality the opposite, namely that Marxian theory says that Profits create Investment, because Profits come from the exploitation of labour power.

Let us go back to the basic Kalecki identity, Profits = Investment, with Investment back on the right hand side. Investment (which disappeared in Scott Fulwiller’s model) can be broken down to Capitalist investment and Government investment.

Profits = Capitalist investment + Government investment

Under the Kalecki causation, increasing government investment (by deficits, if you want) will raise Profits (and for that matter, wages too through more employment and wage rates – the post-Keynesian identities just refer to Private Saving and (importantly) do not break that out into Wages saved and Profits).

Now assume both Domestic Profits and Foreign Income are fixed. What will happen if Government Investment rises? Private Investment will fall unless foreign inward investment rockets.

How can government investment/spending be increased without Private (capitalist?) investment falling (being crowded out)? By running budget deficits, say the post-Keynesians (and MMT). Borrowing could be done by issuing government bonds (orthodox Keynesian) or by ‘printing money’ ie increasing cash reserves in banks (MMT). Issuing bonds may reduce Private Investment to boost Government investment, but the credit created would stimulate overall Investment. Printing Money (MMT) would raise Investment without reducing Private Investment (magic!). MMT/Keynesians will say if Government Investment is not funded by taxes on Domestic Profits but by borrowing with bonds or printing money, then it will not affect profits. Marxists would say that this is ‘fictitious’ investment that must deliver higher profit at some point.

All this is because identities do not reveal causation and it is causation that matters. For the Keynesians, it is the right hand side of the equation (Investment) that causes the left hand side (Profits); namely, that it is capitalist investment and consumption that creates profit. For MMTers, it is a variant of the same, but netted: Net government investment/spending (deficits after taxes) causes Net Private Savings (Profits and Saved wages after investment).

But in the real world of capitalist production, this is back to front. Profits lead Investment, not vice versa; and Net Private Savings enable Government deficits not vice versa. The graphs offered by Scott in his paper of the time series of deficits and net private surpluses can be interpreted with just that causality. What I read from the first graph is not “that the current rise in the government’s deficit is creating net saving for the private sector” (Fullwiler), but the opposite: higher net savings (profits after investment) will produce a higher government deficit or lower surplus. In other words, when capitalists hoard/save and won’t invest, and that is particularly the case in recessions, then government deficits rise (through lower tax revenues and higher unemployment benefits). And Scott’s graphs show that the US government deficits reach peaks in all the post-war US recessions and are at their lowest in boom times.

Indeed, if I do the correlations between the government balance and net private savings, there is indeed a very small inverse relation of 0.07; in other words, a larger government deficit is correlated (weakly) with a net private savings surplus. But if I do the correlation between the government balance and GDP growth, there is a small positive correlation. In other words, more government surplus/less deficit aligns with more GDP growth, the opposite of the Keynes/Kalecki causation, which suggests that it is growth that leads government balances, not vice versa (see the Portes quote above).

Any causation is also modified by the external account. Scott’s second graph including the current account shows that a persistent current account deficit (net foreign inflows) from the 1980s helped to fund US government deficits, even though the private sector surplus disappeared in the 2000s. So the main MMT causation argument is further muddied by foreign income.

We can only really better understand the causal connections if we have Investment isolated and Profits isolated. You see, contrary to the Keynesian/post-Keynesian/MMT view, the Marxist view is that “effective demand” (including government deficits) cannot precede production. There is always demand in society for human needs. But it can only be satisfied when human beings do work to produce things and services out of nature. Production precedes demand in that sense and labour time determines the value of that production. Profits are created by the exploitation of labour and then those profits are either invested or consumed by capitalists. Thus, demand is only ‘effective’ because of the income that has been created, not vice versa.

Because the Keynesians/post-Keynesians have no theory of value, they do not recognise this and read their own identity the wrong way round. From a Marxist view, profits are the causal variable. So if profits fall, then either investment, or capitalist hoarding or the government deficit must fall, or all three.

What is the evidence that profits lead investment and government deficits and not the other way round, as the Keynesians argue? This blog has provided overwhelming empirical support to the Marxist causal direction. See my paper here which compiles all the compelling empirical research (including my own) that supports the Marxist view that, in a capitalist economy, profits lead investment, which in turn drives GDP growth and employment, while government deficits have little influence.

If the Keynes/Kalecki causation direction is right, then all that we need to do to keep a capitalist economy going is to have more government budget deficits. If the MMTers are right, all we need to achieve permanent full employment is permanent government deficits (subject to some possible inflation constraint). What the orthodox Keynesians and the MMTers disagree about is whether these deficits (of government spending over taxes) can and should be financed by issuing government bonds for banks to buy or by the central bank printing money.

The more important question, however, is what drives a capitalist economy. It is the profitability of capitalist investment that drives growth and employment, not the size of a government deficit. The Keynes/Kalecki/MMT macro models hide behind identities and turn them into causes. But identities “say nothing about causation” (Tobin). It’s profits, not government spending, that call the tune.

Recently the former deputy governor at the Bank of Japan Kikuo Iwata argued that Japan must ramp up fiscal spending with any increased public sector debt bankrolled by the central bank. This ex-governor seems to have adopted Modern Monetary Theory (MMT), or at least a version of Keynesian-style deficit spending as a ‘radical’ (or is it desperate?) answer to the continued failure of the Japanese economy to grow anywhere near its pre-global crash rate.

The very latest data on the Japanese economy make dismal reading. The best measure of activity in manufacturing, the Nikkei manufacturing PMI, declined to 48.5 in February 2019, the lowest reading since June 2016, as both output and new orders declined at faster rates. Meanwhile, business confidence weakened for the ninth straight month. In Q4 2018, Japan’s national output stagnated. There has been zero growth compared to the end of 2017. That compares with average annual growth of 2% since the 1980s.

Japan’s per capita GDP has been rising, but that’s only because the population is declining and the workforce too. Personal disposable income has not risen as fast as the economy as a whole in many years—at 1 percentage point less than average GNP growth in the late 1980s. Japan may have ‘full employment’ but the percentage of the workforce employed on a temporary or part-time basis is up from 19% in 1996 to 34.5% in 2009, together with an increase in the number of Japanese living in poverty. According to the OECD, the percentage of people in Japan living in relative poverty (defined as an income that is less than 50% of the median) from 12% of the total population in the mid-1980s to 15.3% in the 2000s.

Iwata’s answer to Japan’s ‘secular stagnation’ is to continue with government deficits and spending, but this time financed by just printing money, not issuing bonds. “Fiscal and monetary policies need to work as one, so that more money is spent on fiscal measures and the total money going out to the economy increases as a result,” That’s the only remaining policy option because “the BOJ’s current policy does not have a mechanism to heighten inflation expectations. We need a mechanism where money flows out to the economy directly and permanently.” BoJ bond purchases are just not working, because the banks are hoarding the cash in deposits and reserves and not lending. They must be by-passed, says Iwata.

This proposal resembles the idea of “helicopter money” – a policy where the central bank directly finances government spending by underwriting bonds. Iwata’s solution to low growth and weak real incomes is just one more variant of the idea that demand must be stimulated to get a capitalist economy going, in this case by just printing more money.

Another variant now in the offing is to create a cashless economy. You see, people keep hoarding their cash (under the mattress) and not spending while small companies get paid in cash and then hide it from their declared profits by hoarding. So central banks and governments, in the world of digital and crypto-currencies, have now come up with the idea of abolishing or devaluing cash in favour of digital transactions.

The latest version of this comes from the IMF. Having tried quantitative easing, as in Japan and elsewhere, and then ‘negative interest rates’ (ie people get paid to borrow money) to boost economies, the idea now is devalue cash. This is how it goes: “In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession. The interest rate cut would transmit to bank deposits, loans, and bonds. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. This would jolt lending, boost demand, and stimulate the economy.One option to break through the zero lower bound would be to phase out cash” How? Make cash as costly as bank deposits with negative interest rates, thereby making deeply negative interest rates feasible while preserving the role of cash.

The proposal is for a central bank to divide the monetary base into two separate local currencies—cash and electronic money (e-money). E-money would be issued only electronically and would pay the policy rate of interest, and cash would have an exchange rate—the conversion rate—against e-money. Shops would start advertising prices in e-money and cash separately, just as shops in some small open economies already advertise prices both in domestic and in bordering foreign currencies. Cash would thereby be losing value both in terms of goods and in terms of e-money, and there would be no benefit to holding cash relative to bank deposits. “This dual local currency system would allow the central bank to implement as negative an interest rate as necessary for countering a recession, without triggering any large-scale substitutions into cash.”

This IMF idea comes hard on an actual attempt by a government to ‘devalue’ cash. Two years ago, the Indian government under Modi overnight abolished high-denomination banknotes. The government claimed the aim was to flush out ill-gotten gains by rich Indians hiding their earnings in cash to avoid tax. But it was the Hindu poor, in the rural areas particularly, who were most hit by this ‘demonetisation’. Two-thirds of Indian workers are employed in small businesses with less than ten workers – most are paid on a casual basis and in cash rupees The demonetisation was supposed to attack corruption and tax evasion, but it seems to have had little effect on that. Indeed, lots of rich Indians made ‘private arrangements’ to obtain new bank notes and avoid having to declare monies into bank accounts..

Getting out of a recession or depression by printing money or reducing the value of holding cash has long been a Keynesian-style idea. Keynes himself was very keen on the ideas of Silvio Gesell, a German merchant, who was minister of finance in the revolutionary government of Bavaria in 1919. Gesell was convinced that the problems of capitalist depressions like the one in the late 19th century were due to the high interest rate on borrowing. This encouraged ‘hoarding’. If that could be stopped, then money would flow into spending and depressions would be overcome. Keynes reckoned that Gesell’s work contained “flashes of deep insight and who only just failed to reach down to the essence of the matter.” Keynes was particularly enamored of Gesell’s attempt to establish “an anti-Marxian socialism, a reaction against laissez-faire built on theoretical foundations totally unlike those of Marx in being based on a repudiation instead of on an acceptance of the classical hypotheses, and on an unfettering of competition instead of its abolition. I believe that the future will learn more from the spirit of Gesell than from that of Marx.” (General Theory).

Gesell’s main policy proposal to end slumps was stamped money. According to this proposal currency notes (though it would clearly need to apply as well to some forms at least of bank-money) would only retain their value by being stamped each month, like an insurance card, with stamps purchased at a post office. Keynes commented: “The idea behind stamped money is sound. It is, indeed, possible that means might be found to apply it in practice on a modest scale.” The idea was to devalue cash and force people to spend and thus raise ‘effective demand’ by breaking the ‘liquidity trap’ of money hoarding.

Gesell’s idea has been widely acclaimed by many post-Keynesians. But unlike them, although Keynes was keen on this ‘trick of circulation’ (to use Marx’s phrase), he saw deficiencies. One was that Gesell did not realise that capitalist investment was not just governed by the rate of interest on borrowing but also by the rate of profit on investing (what Keynes called the ‘marginal efficiency of capital’). So he “constructed only half a theory of the rate of interest.” The other worry was that if cash notes were stamped, then those who wished to hoard would just keep money in bank deposits, gold or foreign currency. So we were back to square one. For more on the fundamental differences between Gesell and Marx on money, see here: http://www.unotheory.org/files/2-15-4.pdf

All these money theories of crises – the wider exponent of which is so-called financialisation – have one thing in common. They ignore or deny the law of value, namely that all the things that we need or use in society are the product of human labour power and under a capitalist economy where production is for profit (ie for money over the costs of production), not need, then money represents the socially necessary labour time expended. We see only money, not value, but money is only the representation of value in its universal form, namely abstract labour as measured in socially necessary labour time. It is a fetish to think that money is something that is outside and separate from value.

As Marx puts it: “a particular commodity only becomes money because all other commodities express their value in it” BUT “it seems on the contrary, that all other commodities universally express their values in a particular commodity because it is money. The movement which mediated this process vanishes in its own result, leaving no trace behind. Without having to do anything to achieve it, the commodities find the form of their own value, in its finished shape, in the body of a commodity existing outside and alongside them…. Hence the magic of money. …The riddle of the money fetish is therefore merely the riddle of the commodity fetish, which has become visible and blinding the eyes.”

This is important and not metaphysical gobbledy gook. If Marx is right in his characterisation of money, then we can argue that capitalist production is production for more money (value and surplus value) through the exploitation of the labour force. That means unless more value is created by the labour force, money cannot make more money. Marx was always quick to oppose “the fanciful notions that the contradictions which arise from the nature of commodities, and therefore come to the surface in their circulation, can be removed by increasing the amount of the medium of circulation.” (referring to the work of Physiocrat Jean-Daniel Herrenschwand).

It is precisely in the category of interest that Marx reckons the money fetish is strongest. In interest-bearing capital the “fetish character of capital and the [conception] of this capital fetish [become] now complete“19 (CAP III, Penguin, p.516). Then it appears that money can make money through interest accrual with no ‘exploitation’ or ‘production’ involved. It is “form without content” (CAP III, p.255). “In M–M’ we have the meaningless form of capital, the [inversion] and [reification] of production relations in their highest degree, the interest-bearing form, the simple form of capital, in which it antecedes its own process of reproduction; […] capacity of money, or of a commodity, to expand its own value independently of reproduction – which is a mystification of capital in its most flagrant form“(CAP III, p.256).

it is this money fetish that dominates the theories of post-Keynesian gurus like the American economist of the 1980s, Hyman Minsky. Minsky’s obsession with money and finance as the cause of crises has been brilliantly exposed in a recent article by Mike Beggs, a lecturer in political economy at the University of Sydney. Beggs shows that Minsky started off as a socialist, following the ideas of ‘market socialism’ by Oscar Lange. But he eventually retreated from seeing the need to replace capitalism with a new social organisation, to trying to resolve the contradictions of finance capital within capitalism.

In the 1970s, Minsky contrasted his position from Keynes. Keynes had called for the “somewhat comprehensive socialization of investment” but went onto to modify that with the statement that “it is not the ownership of the instruments of production which it is important for the State to assume” — it was enough to “determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them.” In the 1970s, Minsky went further and called for the taking over of the “towering heights” of industry and in this way Keynesianism could be integrated with the ‘market socialism’ of Lange and Abba Lerner.

But by the 1980s, Minsky’s aim was not to expose the failings of capitalism but to explain how an unstable capitalism could be ‘stabilised’. Biggs: “His proposals are aimed, then, at the stability problem. ….The expansion of collective consumption is dropped entirely. Minsky supports what he calls “Big Government” mainly as a stabilizing macroeconomic force. The federal budget should be at least of the same order of magnitude as private investment, so that it can pick up the slack when the latter recedes — but it need be no bigger.”

This policy approach is not dissimilar from that of MMT supporters. Minsky even proposed a sort of MMT job guarantee policy. The government would maintain an employment safety net, promising jobs to anyone who would otherwise be unemployed. But these must be sufficiently low-paid to restrain market wages at the bottom end. The low pay is regrettably necessary, said Minsky, because “constraints upon money wages and labor costs are corollaries of the commitment to maintain full employment.” The discipline of the labor market remains: working people may not fear unemployment, but would surely still fear a reduction to the minimum wage (Beggs).

Thus, by the 1980s, Minsky saw government policy as aiming to establish financial stability, in order to support profitability and sustain private expenditure. “Once we achieve an institutional structure in which upward explosions from full employment are constrained even as profits are stabilised, then the details of the economy can be left to market processes.” (Minsky).

Minsky’s journey from socialism to stability for capitalist profitability comes about because he and the post-Keynesians deny and/or ignore Marx’s law of value, just as the ‘market socialists’, Lange and Lerner, did. The post-Keynesians and MMTers deny that profit comes from surplus value extracted by exploitation from the capitalist production process and it is this that is the driving force for investment and employment. Instead they all have a money fetish. With the money fetish, money replaces value, rather than representing it. They all see money as both causing crises and also as solving them by creating value! That leads them to ignore the origin and role of profit, except as a residual of investment and consumer spending.

So much for theory. What about reality? The reality is that the late 19th century depression did not end because money was pumped into the economy. But it did end, so why? In my book, The Long Depression, I explain how Marx’s law of profitability operated and after several slumps, profitability in the major economies was restored to enable a recovery in investment in the 1890s (Chapter 2) followed by increased international rivalry in a period of globalisation (imperialism) that eventually exploded into a world war as profitability began to slip again in the 1910s

The Keynesians (including the MMTers) like to say that the Great Depression was resolved by Keynesian-style monetary easing and fiscal spending. But the evidence is against this. In the 1930s, monetary easing (QE etc) failed, something Keynes recognised at the time. New Deal budget deficits were never applied much but, even so, the New Deal work programmes did not really reduce unemployment or get real incomes up until the war ‘boom’. Again, see my book, The Long Depression, Chapter 3, where I show that the US economy only recovered once a war economy was imposed with government now dominating investment.

What is different about the Long Depression since 2009 is that, unlike the Great Depression of the 1930s, there are now very low (official) unemployment rates in the major economies. Instead, real incomes are stagnant, while productivity and investment growth is abysmal. Financial markets are booming but the productive sectors of the economy are crawling along. And yet the period since 2009 has been accompanied by all sorts of monetary tricks: zero or even negative interest rates, unconventional monetary policy (QE) and now proposals for ‘helicopter money’, unending MMT-style government deficits and a cashless economy (Gesell-style).

None of the ‘money fetish’ schemes have worked or will work to get the capitalist economy going. Instead such measures have just created financial bubbles to the benefit of the richest. That’s because these “tricks of circulation” are not based on the reality of the law of value.

Nigeria has just had a general election to elect a new president and Congress. Nigeria is often ignored in the global scheme of things. But it is the largest country in Africa with around 200m in population and a larger national output than South Africa. It is rich in natural resources (especially fossil fuel energy) and its people. But it is appallingly poor. Nigeria is the prime example of a country, fashioned by imperialism from various original large tribes originally for the slave trade and later into a state for the extreme exploitation by multi-national companies. The Nigerian elite (based on the military and oil businesses) has taken its cut from this exploitation and rules through patronage, corruption, and in the recent past by outright military dictatorship.

For the last 20 years, however, there has been a semblance of democracy, with ele ctions for governments. But this democracy is relative. In the mainly muslim inland north-east, there is a bitter battle going with Islamic terrorist groups (Boko Haram) who seek to impose strict Islamic rule over swathes of part of Nigeria.

But at least, in 2015, the last president of Nigeria, Goodluck Johnson, conceded defeat to the current President without trying to stay in power using the military and chicanery- for the first time in Nigeria’s chequered history.. The general election this time pits the incumbent Muhammadu Buhari (76 years), of the governing All Progressives Congress (APC) against the opposition People’s Democratic Party (PDP) led by Atiku Abubakar (72 years). The APC purports to be a centre-left party opposed to austerity and in favour of better conditions for Nigerians, while the PDP advocates neo-liberal pro-market, pro-oil company policies.

Buhari’s platform is “to be tough on insecurity and corruption” (which ironically was little changed under his presidency), and he wants to complete much-needed infrastructure projects. Abubakar is a pro-business free marketeer whose main pledges have been to privatise giant state-run companies and float the embattled naira currency. In practice, as in the US, there is little to choose between the two main candidates. Both men are from the mainly muslim north of the country which is where Buhari gets his support; Abubakar gets his from the south and south-east. The mega-city Lagos with its urbanised 20m swings between the two parties and will decide the result.

Both leading candidates are muslims by religion and both intend to do nothing to change the nightmarish poverty and inequality in Nigeria, or even to establish equality before the law and protect human rights. As one middle-class urban voter put it: “They [Abubakar and Buhari] are both terrible people and not fit to be president … I don’t think Atiku will bring any real change if he wins. And all the ‘experience and leadership’ they’ve sold us at all levels, what has it brought us really?”

While they are in their 70s, more than half of Nigeria’s registered voters are under 35. Nigeria is a youthful country with a very fast growing population. Indeed, on current trends, Nigeria will double its population to 400m by 2050 and by any stretch become the most important state in Africa.

Young people (0 to 19 years of age) account for more than 54% of the population and their conditions are dire. Currently nearly a quarter of the working age population is unemployed, while the youth unemployment rate reached an all-time high of 38% in the second quarter of 2018.

The Nigerian economy is a one-trick pony, as are many in Africa controlled by imperialism. Oil and gas production dominates; so all depends on the price of oil globally.

The Nigerian capitalist economy operates mostly for the foreign multi-national oil companies. There is little investment outside of energy. Overall investment to GDP moves with the vagaries of the crude oil price and since the sharp fall after 2010, it has fallen to a 20 year low.

Investment in any capitalist economy, including Nigeria, depends primarily on its profitability. It is difficult to get decent data to measure the overall profitability of Nigerian capital. But using the Penn World Tables, I reckon it looks something like this.

The profitability of capital seems to follow closely the price of crude oil, demonstrating again that the Nigerian economy is imbalanced and structured to benefit only international oil, and not even domestic capital. In the boom period for the oil price in the 2000s, GDP growth took off and the rate of profit on capital (on my measure) rose 60%. But since 2010, the oil price has halved and Nigeria’s real GDP growth has disappeared.

And the falling oil price and Nigeria’s slide down has meant a rising budget and external trade deficit. That means the next government will be applying yet more austerity for the people while trying to restore profitability for the energy industries.

With the sharp drop in the oil price in 2016, the economy quickly slipped into recession and the slow recovery since 2017 has had little effect on providing jobs for young people and others. No wonder the biggest national group of immigrants trying to get into Europe from North Africa are Nigerian.

While Nigeria may have the largest GDP in Africa, with 200 million people, its income per person is shockingly low at just 19% of the world’s average. “Inequality in terms of income and opportunities has been growing rapidly,and has adversely affected poverty reduction. The North-South divide has widened in recent years due to the Boko Haram insurgency and a lack of economic development in the northern part of the country. Large pockets of Nigeria’s population still live in poverty, without adequate access to basic services, and could benefit from more inclusive development policies. The lack of job opportunities is at the core of the high poverty levels, of regional inequality, and of social and political unrest in the country.” (IMF report).

Inequality is huge, with the gini coefficient of inequality of income over 40. Nigeria has the highest proportion of people earning below the World Bank’s definition of poverty in the world! Out of 180 countries, Transparency International places it the 144th least corrupt – in other words, it is near the top for corruption. Nigeria’s annual inflation rate is permanently in double digits, with interest rates for borrowing near 20%.

The choice for the people in this election is between the incumbent president, an ex-general who participated vigorously in previous military coups and dictatorships but is now a ‘converted democrat’; and an oil tycoon. No wonder the voter turnout is likely to be only around 45% of 73m eligible to vote; the unemployed youth and poor do not vote (except with their feet). So Nigeria’s nightmare is likely to continue.